It turns out Hillary Clinton was serious. She’s really not trying to get in at the World Bank. Jeffrey Sachs, on the other hand…

Banks are foreclosing on Churches in record numbers. The causes are very familiar:

During the property boom, many churches took out additional loans to refurbish or enlarge, often with major lenders or with the Evangelical Christian Credit Union, which was particularly aggressive in lending to religious institutions.

Then after the financial crash, many churchgoers lost their jobs, donations plunged, and often, so did the value of the church building.

Meanwhile, “Foreclosures and other distressed properties account for more than a third of all home sales.”

Not surprisingly then, the National Association of Realtors reports that “Housing affordability at all-time high.” (NAR’s advice: There’s never been a better time to buy!)

The Financial Times reports that 2011 was the first year in decades without the opening of a new U.S. Bank.

If there’s a question about the lack of demand for purchase homes right now, one need only look to the jobs data. In today’s employment report, a “third solid month” of employment growth is reported, yet, total employment continues to be way down:

Some 43 percent of the 12.8 million unemployed Americans had been out of work for more than 6 months in January, the latest Labor Department data on the long-term unemployed. In all, nearly 24 million people are either out of work or underemployed. Those people aren’t out of work for lack of trying: there just aren’t enough jobs to go around. For every opening, there are four unemployed workers who need a paycheck.

Total employment numbers are still comparable to 2001 levels.

And we’ll definitely be needing taxpayers to work more, because the U.S. government will be shelling out at least $5 trillion over the next decade, just to pay interest on the debt.

Late last month, Bloomberg reported that British Petroleum continues to experience substantial growth in the amount of money it receives from the Pentagon for its oil services. From 2010 to 2011, Pentagon contracts with BP increased by one-third from about 1 billion to 1.35 billion.

This was presented by some in the media as a scandal, since presumably, BP should be punished by the Pentagon for it’s massive 2010 oil spill in the Gulf of Mexico. The larger story, however, should be about just how much the Pentagon spends on oil every year.

The BP contracts are just one small portion of total Pentagon spending on oil, and as Bloomberg reported earlier in February, Pentagon spending on oil surged 26 percent from 2010 to 2011, rising from $13.7 billion to $17.3 billion during that period. That’s about 117 million barrels of oil.

Indeed, the U.S. Department of Defense is the largest purchaser of oil on earth, and reportedly consumes more than any other governmental department or body worldwide. Obviously, the effect of such a huge driver of global demand on the global oil price certainly isn’t zero.

There have been talks in Washington of cutting the military’s budget by about 500 billion over the next ten years. In spite of the fact that this amount is laughably small, the military is claiming that the global oil price, which the military itself is pushing up, will make even a tiny reduction difficult.

We can consider this along side the much ballyhooed effort by the Pentagon to “go green” and slash its use of fossil fuels. It also promises to cut greenhouse gas emissions by ten percent. This cut, however,

exempts the military’s bases in Iraq and Afghanistan, as well as the jets, ships, and ground vehicles that swallow up 75 percent of the military’s fuel supply.

So, the Pentagon will be cutting emissions except when it’s not. And by cutting its reliance on fossil fuels, it can presumably get to work driving up the price of non-fossil fuels. Whether or not the reduction of fossil fuel use and greenhouse gas emissions should be a goal of public policy is debatable, but in typical fashion, the reality of the effort to “go green” hardly matches the PR.

The idea of the Pentagon becoming environmentally conscious is itself somewhat ridiculous. Governments worldwide have committed some of the worst environmental disasters in history, and government militaries tend to be among the worst perpetrators. Civilian functions of government can be environmentally disastrous, as in the case of the Soviets and the Aral Sea, but governmental war efforts seem to produce the lion’s share of the damage done. Even leaving aside all the fire bombing and the nuclear bombs and the depleted uranium bombs still being used by the Pentagon, we’re left with nuclear test sites, the myriad of polluted weapons production sites, such as Rocky Flats and the non-stop use of oil that is necessary to move around machines of war day in and day out across the globe. The U.S., for example, has essentially been at war nonstop since 1990. That sort of thing gets expensive in both budgetary outlays and in environmental impact.

American taxpayers aren’t just paying once for the Pentagon’s spending spree on oil. They’re also paying through higher prices at the pump. Worldwide, private citizens continue to pay for government militaries through lost limbs thanks to leftover land mines, or polluted soil and groundwater due to depleted uranium, through unexploded munitions, or through just old-fashioned air pollution.

Yet governments continue to lecture private citizens for the crime of driving an automobile to the grocery store or failing to recycle a few aluminum cans.

Note: See Rothbard on air pollution.

Former “private corporation” Fannie Mae returns to the government trough yet again; this time to ask for an additional $4.6 billion.

The Federal Housing Administration (FHA) raises premiums to shore up its insurance fund. Back in November, an audit of FHA suggested that it might need a bailout.

FHA now faces enormous strains on its finances, and it might be too big to fail:

The FHA’s share of the mortgage market has increased sharply since the depth of the financial crisis in 2008. It currently backs about a third of all new mortgages; in 2006, its share of the new loan market was just 5 percent.

Taking into account the big presence of Fannie Mae and Freddie Mac, the government now backs about nine of every 10 new home loans.

Bernanke reported to Congress this week and said he’ll keep QE3 loose in the holster. But in the meantime, he’ll keep interest rates at zero.

Ron Paul’s retort:

“Nobody’s smart enough to have central economic planning,” he said. “Our time has come for serious discussion on monetary reform.”
“The Fed’s going to self-destruct eventually anyways,” Paul added later.”

Meanwhile, Case-Shiller reported that its composite home price index was down 4 percent in December (year over year). Some say it may be headed toward the dreaded “triple dip.” On the other hand, houses are becoming more affordable.

Over the weekend, the NYT reported that “one group is sitting pretty: landlords.”

Last week, the Heritage Foundation published commentary on the number of Americans who pay income tax, and decried the fact that 49.5 percent of Americans are “not represented on a taxable return.” The Daily Mail then picked up the statistics and announced that “HALF of Americans don’t pay income tax despite crippling government debt.”

To its credit, the body of the Heritage post began with a reference to the “the sharp increase of Americans who rely on the federal government for housing, food, income, student aid or other assistance.” The emphasis of the piece, however, and thus, the emphasis of the other news outlets and pundits who have picked up on the statistic, is that too few people pay taxes.

The increase in reliance on government assistance is the problem here, not a lack of people who pay income tax.

Yet, it has become something of a right-wing talking point to claim that a declining number of taxpayers among some income groups is a nefarious development in American history.

The emphasis on the lack of taxpayers is getting the whole issue backward. The problem is the increase of income from government transfer payments. There is nothing bad whatsoever about fewer people paying income taxes.

The Conservative obsession with getting people to pay more in taxes comes from a preoccupation with class warfare in which it is assumed that if middle-class and wealthy people are paying too much in taxes (which they are), then the solution is to punish low-income people by making them pay more in taxes. It’s allegedly not “fair” if everyone is not being extorted by the state in a similar fashion.

The just solution, however, is to greatly decrease the tax burden of those paying taxes now. In a recent NPR interview, Ron Paul nicely summed up what is actually “fair”:

MR. SIEGEL: This week’s release of Mitt Romney’s taxes and President Obama’s advocacy of a millionaire’s tax raise questions about fairness in funding the government. The first question: Do you believe that income derived from dividends interest or capital gains should be taxed at a lower rate than income earned from a salary or commissions?

REP. PAUL: Well, I’d like to have everybody taxed at the same rate, and of course, my goal is to get as close to zero as possible, because there was a time in our history when we didn’t have income taxes. But when government takes it upon themselves to do so much, you have to have a tax code. But if you’re going to be the policemen of the world and run all these wars, you have to have a tax code. But as far as what the rates should be, I think it should be as low as possible for – for everybody.

It’s a safe bet that Siegel’s underlying assumption behind the question is that in order to make taxes fair, then anyone who is paying a tax bill that is too “low” should therefore have his taxes raised.

The opposite is true, as noted by Paul.

So, when Conservatives get bent out of shape about some people not paying tax, the response should be to demand lower taxes for everyone, not to complain that people aren’t paying their “fair share,” which seems to be the Conservative sentiment.

We might also note that this statistic apparently only applies to income taxes. It says nothing about payroll taxes, which for many middle-class people is by far the largest part of one’s monthly tax bill. Any teenager with his first job notices just how much those payroll taxes take out of one’s paycheck. So, to claim that people aren’t paying taxes simply because they’re not paying income tax is rather disingenuous. Since there’s no such thing as a Social Security or Medicare trust fund, payroll taxes are really just income taxes under another name.

Also, any demand for more taxation is really just a demand for increased government revenue. It’s a call for more money so government can bomb more people, bail out more banks and spread around more largesse to politically well-connected friends.

So, the focus on whether or not “enough” people are paying taxes completely misses the point. The larger point is that far too many Americans receive government benefits. Indeed, recent increases in income as measured by the BLS, reflect increases in government transfer payments, as I’ve shown here.

Ludwig von Mises wrote in Bureaucracy that a system in which a majority of the population is dependent on the government dole leads to an unstable political and economic situation, since a majority of the population then has a vested interest in increasing the power of government to redistribute wealth. While the Heritage article makes some comments in this vein, it nevertheless makes the claim that “The rapid growth of Americans who don’t pay income taxes is particularly alarming for the fate of the American form of government.” Really? By that logic, “the American form of government” would be in danger if the income tax were abolished. Oh, how did America ever survive prior to the 16th Amendment?

There is no doubt that the growth in dependency on government largesse is a serious problem, but that doesn’t mean that any American pays too little in taxes. It simply means that the government spends too much money.

The Conservative reaction to this statistic, however, seem to be: “Hey, those guys aren’t being taxed! Tax them!” This is hardly a phrase that should be uttered by anyone who claims to be for limited government.

Prices are increasing for land in the corn belt:

Land values are uniformly rising throughout the Corn Belt and the Great Plains, thanks to farmers being the primary buyers and to the value of commodities. Higher prices for grain have spurred the most significant demand for land since the 1970’s.

These price increases will work their way into the cost of food for consumers, and let’s not forget that corn (among other crops grown in the corn belt) is a subsidized crop, so taxpayers get to pay for the corn twice.

As mentioned by one farmer in the film King Corn, “I don’t know a single farm out here that isn’t in a government program.”

The profitability of farm land may also be linked to the proliferation of genetically-modified crops in recent years. In addition to corn, the linked article also notes that much of the land may be used for soybeans. There is nothing free-market about soybeans either since soybeans are another case of a type of government subsidy being used to enhance private profits (soybeans are also directly subsidized). In this case, the subsidy takes the form of a government-granted monopoly known as a patent. This patent is on the soybean genes themselves, since these genes are from herbicide-resistant soybeans. (Most corn/maize also is also genetically-modified (GM) and patented.)

The patenting of crops in turn leads to less innovation in crop varieties and in consumer choice since the owners of genes can prosecute any farmer who plants varieties of non-GM crops that may have been unintentionally crossed with GM crops via wind. Farmers who have the bad luck of owning farms downwind are then likely to be sued by the the owners of the patents should the downwind farmer attempt to harvest seeds from his own crops.

This use of monopoly power to crush the planters of other varieties of corn and soybeans constitutes a third way that government intervention leads to consumers paying extra for food. This time, the extra payment is in the form of fewer choices in food.

This isn’t an attack on GM food, mind you, which may have many benefits. However, the growth of government monopoly power over all varieties of GM crops and over crops that even happen to be planted near GM crops (which is most crops) has led to a severe retardation in innovation and the use and development of other varieties of these crops everywhere.

In the developing world, however, Reuters reports that GM crops are booming, and it is hard to begrudge the residents of poorer countries their desire to grow food that is less likely to spoil or fall victim to disease. On the other hand, one cannot know the long term effects of government monopoly on the future of innovation in agriculture in the absence of a free market in planting and development of new crops.

On the other end of the spectrum is Europe, where most GM crops are simply banned. This is just another type of tax on consumers, although Europe is notorious for meddling in even the tiniest aspects of agriculture, so who can be the least bit surprised?

A recent Reuters story notes that the bans on GM crops will likely continue well into the future, although they have approved one variety of maize controlled by Monsanto via its monopoly on the patented gene. But otherwise, any consumer who actually wants these goods is simply out of luck.

So, while farmland is now profitable, the taxpayer and consumer is certainly paying his fair share. He pays in his tax dollars, and he pays for the government monopolies (known as patents) which in turn diminish his choices of crops via government intervention. And, he pays more for food through price inflation. The feds point to the CPI and claim that prices increases are mild, but even the CPI shows food price increases at 3.5 percent to 4 percent over the past year, and this is well above income growth for the same period. If food prices are growing faster than income, that’s not the kind of “stability” that leads to wealth creation. Of course, As the New York Fed has informed us: Who needs food when you can just buy an iPad?

Within minutes of Robert Zoellick’s announcement that he will leave the world bank being made public, Hillary Clinton announced that she was interested in the job. The World Bank has long been a favored retirement village for American warhawks. Considering the fact that World Bank is ostensibly about making loans to developing counties for capital improvements, it’s significant that three of the 11 World Bank presidents (Robert McNamara, Paul Wolfowitz and John McCloy) have come from the U.S. Department of Defense/War. Now Clinton, while not at the DOD, but very much the architect of the American war on Libya, wants the job. I suppose that after years of bombing developing countries into rubble, people like Clinton and Wolfowitz and McNamara think it might be fun to assuage their consciences by lending money to developing countries.

Whether such loans actually help matters for these countries if hardly clear. Given that the World Bank was founded by Keynesians at Bretton Woods, one might be somewhat skeptical of the economics and politics put forward as the justification for the scheme. On the other hand, we do know that the World Bank is a mechanism for exercising political control over the debtor nations. So it’s really just the same old story, and it’s fitting that agitators for wars of conquest find a home at the world bank. To paraphrase Carl von Clausewitz, perhaps the World Bank is war by other means.

The real estate bust in Spain has produced a variety of apartment communities and similar properties that have turned into ghost towns as real estate demand has evaporated. See the link for photos. In a town called Sesena:

More than 13,000 apartments were supposed to go up to create a mini-city for 30,000 people just 45 minutes outside of Madrid. But only 5,100 were built, many are uninhabited and regular Spaniards who bought them as investments are now competing to offload them for huge losses.

In Sesena and other ghost developments around Spain, some banks are already trying to unload finished apartments at discounts of up to 50 percent of their original prices

Any discussion of misallocation of resources on a massive scale would be incomplete without a remembrance of Muang Thong Thani, the small city of condo towers built near Bangkok in Thailand right before the Asian debt crisis of 1997. The towers were built to house approximately 150,000 people, although it’s unclear if those building have filled up, even fourteen years later. It’s difficult to tell if the web site has been updated since 2007, but it presently states that “The vast majority of these condos, shops, and office buildings have never been occupied since their completion in 1995-97.”

The Commanding Heights documentary (see below) has an interesting section on Muang Thong Thani and on how loose monetary policy in Europe and the US helped to ruin the Thai economy. (Although the video doesn’t quite put it that way.) It offers some insight into the psychology of real estate booms and how middle class investors are encouraged to invest in doomed real estate by easy money policies.

Also, Mark Thornton noticed last week that the world’s tallest building is now a distressed property.

Meanwhile, here in the U.S., foreclosure activity may be ramping up following the conclusion (for the most part) of negotiations with loan servicers and the feds and state attorneys general over a massive legal settlement. The conclusion of negotiations signals that the processing of foreclosures, which has slowed significantly during the past year as banks dealt with the controversy, may now be speeding up. Considering that, according to the Mortgage Bankers Association, more than 14 percent of all first-lien mortgage loans in Florida are now sitting in foreclosure (to name the worst one), it looks like they will have plenty of loans to deal with. The Houston Chronicle reports, however, that the taxpayers may be footing much of the bill for the financial hit the banks will be taking.

Also this week: Housing starts up. Well, they’re up compared to banner years 2009 and 2010.

According to Bloomberg, banks are beginning to push short sales consistently for the first time since foreclosures began to pile up back in 2008. Prices really began to fall before the financial crisis, as early as mid-2007 in some places, but banks have long placed numerous obstacles in the way of homeowners who tried to sell their homes for what they were actually worth in the marketplace. Those of us who have worked with real estate agents who do short sales have heard nothing but complaints for years about how banks will stall and prevent short sales in a variety of ways. The result is that the property then goes into foreclosure and ends up selling for far, far less as an REO property post-foreclosure.

Why would banks do this? Well, banks have for years just assumed that home prices would turn around “any day now.” Their army of PhD economists, who ran their little computer models to tell them what would happen, told them to just avoid facing the reality of home prices for just a little while longer, and then everything would be OK. After nothing but declines since 2008, some banks are coming to terms with reality.

The article mentions CoreLogic’s home price index as ongoing proof of price declines, and we could also point to Case-Shiller in which the composite index has declined year over year fro the past 14 months or so, ever since the tax credit ended. In other words, government meddling did nothing but postpone the inevitable.

The New York Times reports on vacant malls across the American landscape. Thanks to declining retailers:

The result is near-record vacancy rates at malls of all kinds, both the big enclosed ones and the sprawling strips. Sears Holdings is closing up to 120 stores, Gap Inc. 200 stores and Talbots 110. Abercrombie & Fitch closed 50 stores last year, Hot Topic, almost the same number. Chains that have filed for bankruptcy in recent years, like Blockbuster, Anchor Blue, Circuit City and Borders, have left hundreds of stores lying vacant in malls across the country.

The political side of this is that these malls were cash cows for state and local governments and now that revenue is drying up. It’s not just that people are buying less stuff, it’s also that a lot of it has moved online, so the stakes are very high for governments seeking to tax internet sales.

Meanwhile, while single-family and retail real estate remains in the dumper, multifamily loan originations spiked 64% in 2011. The multifamily industry is just making up for lost time after almost a decade of misallocation of resources toward single-family mortgages in response to Fannie, Freddie and the Fed pushing homeownership like there’s no tomorrow. Multifamily production and demand suffered from about 2003 through 2009, thanks to government and GSE edicts on mortgages.

The Senate voted to ban executive bonuses at Fannie and Freddie.

After buttering up the public for another round of quantitative easing, the buzz today (at CNN, Fin Times and the WSJ) is that the January jobs report will kill QE3 forever.

The census bureau released new homeownership rate data this week for the 4th quarter. The national estimated rate was 66 percent, which, if true, means homeownership is returning to more reasonable levels. I write on the homeownership rate here.

Century 21 takes a softer line: Apparently, it’s been twenty years since a residential real estate company advertised during the Super Bowl. Remember, there’s never been a better time to buy. Except maybe next year when prices are lower.

Century 21 is naturally hoping that you will forget this commercial which they produced shortly before the housing collapse. Remember this one? The wise, go-getter wife and her REALTOR® browbeat a reluctant husband into buying an overpriced house – in 2006. The agent in the new commercial is slightly less atrocious.




Housing starts remain at 15-year lows, bumping along near the same levels they reached in early 2009 following the financial crisis. MSNBC reported that the latest starts data capped off “a grim year” although the starts totals were actually up slightly from December 2010. Nevertheless, starts are still more than 75 percent off peak levels.

The housing starts data isn’t all gloomy. If we drill down and look at the multifamily starts, we see that those are up 50 percent since December 2010.

Why are they up so much? The markets are responding to rapidly falling vacancies in apartments. According to one recent report, apartment vacancies are heading down to tight levels while rents are heading up. Also:

Hessam Nadji, managing director, research and advisory services at the firm, tells GlobeSt.com that “Demand for rental housing will remain robust in 2012 as strong demographic trends combine with shifting consumer behavior. The total population within the prime 20-34 year old renter cohort has increased dramatically, and will increase by an additional 2 million through 2015,” he says. “As this age cohort continues to face significant hurdles to homeownership and as the tight employment market encourages flexible housing decisions, many of these new households will continue to favor renting.”

It’s not just that potential homeowners are facing hurdles, it’s that they just don’t buy the myth of homeownership anymore. And with demand for rentals up, housing starts for new single-family homes is going nowhere.

Meanwhile, as USAToday reports, mortgage rates continue to fall to record lows, but few people are buying.

The average rate on the 30-year fixed mortgage fell again this week to a record low. The eighth record low in a year is attracting few takers because most who can afford to buy or refinance have already done so.

In happier times, even a small decline in the mortgage rate would produce a frenzy of buying and refinancing. Now, the feds are pushing rates down below 4 percent just to get a tiny bump in activity.

Incidentally, last week, CoreLogic’s report on home prices showed yet another year over year decline in prices, following 16 months of year-over-year declines, in spite of those record-low mortgage rates.

So one would think that the last thing real-estate-industry workers need is to have their web sites shut down. But, that may be just the latest threat to the industry from government meddling if we get SOPA and PIPA: Some real estate pros take aim at anti-piracy legislation

The Wash Post has a short list of some of the best anti-SOPA protests. Can readers do me a kindness and list some of the other good anti-SOPA protests out there? The more alarming or creative, the better.

WashPo lists these:
Wired.com, Wikipedia, Grrenpeace.org, Mashable and (sorta) Google.

On Friday afternoon, CNBC hinted that QE3 may be imminent:

Federal Reserve officials are seriously considering giving the US economy—and especially the housing market—an added jolt with more quantitative easing.

It is also significant that financial markets expects [sic] the Fed to act.

Already some Wall Street banks are building QE3 into their forecasts. Morgan Stanley fixed income economist David Greenlaw said he expects more easing to be announced this spring.

With Tom Hoenig now off the FOMC and in retirement, the inflation hawks are getting pretty thin. Also, due to recently-adopted regs, FOMC members are now being told to “refrain from describing their personal views” on inflation and on QE, so we may see even less of a debate on this in the future.

The Dallas Fed has noted that home price appreciation didn’t reflect real economic conditions as early as the 1990s.

The imbalance between economic growth and home prices first emerged in the 1990s, the report contends.

“The house price growth rate kept climbing until around 2005, even though real GDP growth didn’t similarly increase and even weakened around the 2001 recession,” the researchers added

Many analysts noticed this but were laughed at for being too bearish. Certainly the new home inventory grew steadily to historic highs from 2003 to 2005 as new construction charged ahead, but demand moderated. That was also a sign of trouble, although few seemed to care.

A Fannie/Freddie overhaul continues to look unlikely, as noted by The Hill, legislation to reform or privatize the GSEs are going nowhere.

Given the current economic orthodoxy in Washington, it’s hard to take comments like this seriously:

“As we continue to move immediate reforms, our ultimate goal remains, to end the bailout of Fannie, Freddie and build a stronger housing finance system that no longer relies on government guarantees,” panel Chairman Spencer Bachus (R-Ala.) said last summer.

As a sign of some returning prudence, however, home-loan originations, as measured by LPS, were down 24 percent in October from a year earlier. A decline in home-loan activity might help to fuel badly-needed increases in savings.

The Wall Street Journal today notes the lack of prescience at the Federal Reserve prior to the crisis: “…But Mr. Bernanke described the cooling of the housing boom as a ‘healthy thing.’
‘So far we are seeing, at worst, an orderly decline in the housing market,’ he said.”

Fannie Mae’s CEO, Michael Williams, resigned this week. Said Williams: “I am extremely proud of what we have achieved together, and I am confident that they will continue to make a positive difference.” Freddie Mac’s CEO is also on the way out, by the way.

The Obama Administration announced this week that it wants to convert foreclosed properties to rentals. It is ” a pilot program to sell government-owned foreclosures in bulk to investors as rentals.” Since this is a partnership with government-owned corporations Fannie and Freddie, this program is likely to manifest itself as yet another investment opportunity only for massive, politically-connected enterprises. Small investors will very likely need not apply.

US Senator Jim DeMint declares in South Carolina: “If You Don’t Listen To Ron Paul…The Federal Reserve Is Gonna Destroy Our Monetary System” See the video.

Housingwire today reports that bank risk managers still believe that excessive levels of mortgage debt, student loan debt and credit-card debt are still a serious risk.

FICO drew that conclusion from a fourth-quarter survey of bank risk professionals conducted by the Professional Risk Managers’ International Association.

Of those surveyed, 47% of risk managers say they expect mortgage delinquencies to rise, while 13% believe delinquencies will fall.

FICO says that’s more pessimistic when comparing 4Q survey results to the previous quarter.

Student debt also remains a concern, with education loan debt now exceeding credit card debt nationwide.

…

Evidence is mounting that student loans could be the next trouble spot for lenders,” said Dr. Andrew Jennings, chief analytics officer at FICO.

In short, risk managers are significantly more pessimistic now than they were last quarter. And for good reason. Over the past 10 to 15 years, total debt outstanding in the US has grown as a much faster pace than population, and little has been done to deal with the debt in spite of widespread unemployment, flat personal income, and declining collateral values.

According to this article in the Atlantic Monthly, student loan debt has grown more than 500 percent since 1999. Over a similar period, from 1998 to 2008, household credit-market debt has grown 140 percent. During this period, the US population grew about 10 percent. A similar curve can be observed for mortgage debt as well.

The graph shows that overall debt loads have come down by 5 percent since the financial crisis in 2008. While this is a rare case of total debt actually decreasing, the 5 percent decline is hardly a game-saving drop in the face of debt loads that nearly grew at exponential rates during the height of the bubble.

Some economists have made a big deal out the mild increase in the savings rate. This, however, does not show any big improvements either. The personal saving rate, at 3.5 percent during November, was tied at the lowest level seen since Janaury 2008. There was indeed a period following the initial crisis of late 2008 during which the saving rate hit 7.1 percent (during May 2009), but it has since steadily declined and has been below 4 percent for the past three quarters. This is likely as a result of ongoing efforts, through easy money policies, to keep the consumers spending.

And has it worked? Following a post-2008 drop that was similar to the drops in mortgage and credit market debt, consumer debt has been heading back up since the third quarter of 2010. Consumer debt is now about 5 percent below peak levels, following the initial drop, but has grown at about 3 times the rate of population over the past decade. The feds have managed to get consumer debt back up over the past 18 months or so. Has this increased spending been the result of increased employment and wages? Clearly not, since there are still at least 9 million unemployed Americans, and probably more.

Many of those continue to make payments on mortgages, credit card bills and student loans. How much longer this can continue in the fact of ongoing unemployment, underemployment, and underwater real estate remains to be seen, but it’s not difficult to see why the bank risk professionals suspect that more defaults may be on the horizon.

The economy will fix itself through a long and unpleasant period of deleveraging, but that appears to still be in the very early stages. Ongoing government interventions such as the homebuyer tax credits and continued efforts to push down interest rates continue to discourage saving and capital accumulation.

The one place we have seen a fair amount of deleveraging is in the mortgage markets as homeowners default, foreclose, and walk away, but the inventory there continues to be substantial, and declines in mortgage delinquencies may have stalled. During the 3rd Q of 2011, the percent of mortgage loans in foreclosure, according to the Mortgage Bankers Association, was flat from the second quarter, and it was up from the 3rd quarter of 2010. 4.3 percent of mortgage loans were in foreclosure during the 3rd Q of 2010, but 4.4 percent of them were in foreclosure during the same period this year. The overall trend is downward, but at a very slow pace.

Since one can’t get out of student debt through bankruptcy, and since many households use credit cards to balance household budgets, we could be looking at many years before present consumers begin to engage in some serious deleveraging of household debt. We certainly don’t seem to have seen much of it yet.

The AP reported today that the homeownership rate declined to 65.1 percent during 2010, which is “the biggest drop since the Great Depression.” However, in order to return to a more normal rate of homeownership, the present rate needs to drop even more.

According to the Census Bureau’s quarterly estimates of the homeownership rate (found here), the homeownership rate peaked in the US at 69.2 percent during the fourth quarter of 2004. This then began to slowly drop, and then the decline began to accelerate after 2007. The homeownership rate has now fallen about 5 percent from the peak, and was 65.9 percent during the second quarter of 2011.

As can be seen in the graph below, even after the declines of the last four years, the homeownership rate is still above what was common for most of the past 45 years. The average homeownership rate, including all years since 1965, is 65.3 percent. But, if we exclude the bubble years from 1996 through 2010, the average is 64.3 percent.

(A one-percent change in the homeownership rate is a pretty big deal since there are more than 127 million households in the US, so a change in the ownership status of one percent of those households involves well over a million people.)

So, before the US homeownership rate returns to the norm, it’s likely that hundreds of thousands of present homeowners will become renters again.

Of course, it’s not like there’s some law of nature that states that the homeownership rate should be around 64 or 65 percent. Homeownership rates vary greatly from country to country, and don’t necessarily tell us much about the standard of living of a population, either. The homeownership rate in Switzerland, for example, is around 34 percent.

Nevertheless, we wouldn’t be going out on a terribly long limb by concluding that a 65 percent homeownership rate is actually on the high end of what should be considered normal in the US since World War II. In fact, when we look back on rates form the sixties, we see that the homeownership rate climbed to 65 percent following the so-called “Thirty Glorious Years” of the post-war easy-money-fueled expansion. Real incomes did truly increase during this period and the standard of living increased substantially. Personal saving rates also increased to some degree.

Yet, at the tail end of this period, the homeownership rate only reached 65.6 percent in 1981 before heading down again, and it then remained below 65 percent until the homeownership boom took off in the late 1990s.

Yet, there’s no reason that the homeownershiip should have risen above its historical average during the last 15 years, except for the fact that household and mortgage debt expanded greatly during this period. People weren’t buying more houses after 1996 because they had more savings and more real income. In fact, we know that real average wages have not been going up since the 70s. And saving rates certainly haven’t increased. So where did all the money for down payments come from? The only explanation we’re left with is that the easy money policies of the central bank during this period, combined with a faulty psychology that convinced people that homeownership is some kind of investment, drove many people to buy. And they could buy because mortgage rates had been driven down to 6 percent (or lower) at the same time that the saving rate was falling. In a free market of course, the lack of saving would have been driving interest rates up, but the Fed intervened to make sure that no one missed out on one’s god-given right to granite countertops.

It’s also worth remembering that When the homeownership rate was heading north during the 1960s, people were still putting 20 percent down for most conventional loans. These levels of homeownership were then surpassed over the past 15 years, but it certainly wasn’t because people were making more and saving more than their parents did. They were simply going more deeply into debt.

Now, after three years of high unemployment and stagnant growth, the homeownership rate has fallen, with millions of homeowners becoming renters again. Amazingly, the homeownership rate remains above what it was during much of the post-war boom, and is likely to keep falling.

The Fed has managed to push mortgage rates below 4 percent, but the cat is out of the bag and potential homeowners know that homeownership comes with significant risks. In an age of declining incomes and high unemployment, why should people be clamoring to buy houses? One can only hope that the Fed will fail in its effort to re-inflate the bubble.

The present crisis can only be cured through a process of debt reduction, savings, and capital accumulation to make up for 15 years of non-stop spending at the expense of all else. A decline in homeownership is an important part of this process.

(Note: In the graph below, I’ve added the regional homeownership data for the Western U.S. to add a little context. Note that in the West, which includes Nevada, Arizona and California, the proportional size of the boom and bust in the homeownership rate is even larger.)

One of the benefits of the present depression is the fact that the voters are grumpier than usual. It’s hard to care about your carbon footprint when you don’t have a job, and it’s now even possible to criticize the federal reserve without being deemed insane. Yet now, even the most hallowed government-corporate scheme of all, taxpayer-funded sports facilities, are under attack.

The New York Times reported on Tuesday that the Minnesota Vikings are facing opposition to the latest plan for a massive-taxpayer funded stadium.

To their credit, the Vikings have been so far avoiding the making of threats to leave town if they don’t get their way. The usual narrative is this:

Billionaire team owners: We wanna new stadium!
Taxpayers: Well, I dunno, I can barely afford to pay my bills.
Billionaire team owners: Give us what we want or the local economy will implode. Do it now!
Government representatives (to taxpayers): Approve this tax increase now, or I won’t look as hip and cool at the next National League of Cities meeting.
Taxpayers: Gee, I don’t want to destroy the local economy. OK.

The end result is that, yet again, the politically-well-connected wealthy once again enrich themselves at the expense of the middle-class taxpayer.

One of the masters of this was George Steinbrenner, who made a long career out of fleecing the taxpayer to make his Yankee empire more profitable (for him). Amazingly, when Steinbrenner died last year, he was hailed as an free-market entrepreneur. He was an entrepreneur of sorts, of course. He was quite entrepreneurial at using the political system to transfer funds from taxpayers to his pockets.

Raymond Keating at the Colorado Springs Business Journal wrote one of the more insightful columns on the Streinbrenner method of wealth creation:

While George Steinbrenner made Yankee fans very happy with seven World Series victories during his ownership tenure (with the two next closest teams, the Cincinnati Reds and Oakland A’s, winning three each), that does not mean he was a free-market, entrepreneurial capitalist.

Why? Steinbrenner was on the government dole. He received, benefited from and lobbied for handouts from the taxpayers. I speak, of course, about Yankee Stadium.

During the 1974 and 1975 seasons, the Yankees played in Shea Stadium while the original Yankee Stadium was gutted and rebuilt. The taxpayers picked up the tab, which was originally estimated at $24 million but ballooned to more than $113 million. Yet, by the late 1980s, the brazen Steinbrenner was lobbying for a new ballpark.

He got his wish when Yankee Stadium III opened in 2009. Often billed as being privately funded, nothing could be further from the truth. The New York City Independent Budget Office put the public costs at $855 million of a widely reported $1.5 billion total cost. But Neil deMause, co-author of Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, put the total cost of the Yankee Stadium project at $2.3 billion, with the taxpayer share at $1.2 billion. That’s still not the full picture, though, as the Yankees’ PILOTS (payments in lieu of taxes) to New York City are used to pay off the tax-exempt bonds used to construct the ballpark. In effect, the Yankees’ de facto property taxes pay off the team’s mortgage. Few businesses get such a sweetheart deal.

The late Edmund Opitz explained in The Freeman magazine many years ago that once a business accepts a government handout, “it is no longer a business; it’s a hybrid which deserves criticism as an unethical aid on the public treasury.” He continued: “A businessman per se operates within the framework of rules laid down by ‘the market’; when he operates outside this framework, and by a different set of rules, he is something other than a businessman.” Indeed, he becomes a ward of the state.

And this tradition continues with the Vikings of course, although unlike the Yankees, the Vikings are a lousy team.

None of this necessarily implies, however, that professional sports themselves couldn’t flourish without taxpayer support. The larger problem is that the taxpayers and the government officials who help swindle them, seem to actually buy the mercantilist philosophy behind the modern idea of “Economic Development” which is that growth in local economies depend on taxpayer subsidies and sweetheart deals for private corporations. The mere suggestion that the economy should be allowed to grow freely and on a level playing field is met with absolute disdain from Chambers of Commerce and local government officials in every corner of the country.

“Why, if we didn’t subsidize big business,” they say, “why would anyone ever start a business here?” Lower taxes and fewer regulations might be a good start, of course, but see how far that gets you with the city council.

Steve Jobs, one of the most important entrepreneurs and innovators of both the 20th and 21st centuries, has died.

Will he receive the sort of veneration reserved to politicians when they die? That’s unlikely, although Steve Jobs typically did more good for humanity every day before lunch time than any politician has ever done in his whole life.

Jobs should be considered a great American icon in the same way that Michelangelo is associated with Italy or Mozart with Austria.

When foreigners walk into “American-themed” gift shops in America, they should be greeted with commemorative plates bearing Jobs’s face.

Unfortunately, that is unlikely to happen since we have to honor great humanitarians like nuker-in-chief Harry Truman instead.

And of course, Jobs did great things for all humans, and not just Americans.

Rest in Peace, Steve Jobs.

The New York times recently noted that “Economy Faces a Jolt as Benefit Checks Run Out.”

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics…

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession.

When this happens, it will be just the latest bubble to pop.

As far back as 2008, Peter Schiff and other Austrian-minded observers contended that with the various stimulus packages, the feds were just blowing up a government benefits bubble to replace the real estate bubble, which had in turn replaced the dot-com bubble.

The government benefits bubble can’t be maintained forever, so once the stimulus runs out, and as unemployment insurance runs out for millions of unemployed workers, that bubble will burst too, and spending, consumer confidence, and demand for purchasing real estate will fall again.

The NYT piece has some interesting statistics on this, and below, I add some more.

Considering the Personal Income Data

The Bureau of Economic Analysis publishes monthly and quarterly data on “personal income and outlays.” These are just estimates, of course, based on a wide variety of sources, and they represent many types of income.

When the press reports on personal income, it sometimes implies that increases in personal income are necessarily driven by increases in employment and wages. This is not necessarily the case. Increases in personal income, as measured by the BEA, can driven by increases in income in the form of social security payments, Medicare, unemployment insurance and other government transfer payments. Indeed, in many areas of the country where unemployment is high, and where the population is old, government transfer payments may be the primary source of income.

The Personal Income reports do provide specific data on wage income versus transfer payments, however, and it is in these numbers that we can see that so much of the recent increases in personal income are due to “transfer receipts” such as unemployment insurance, Medicaid and other government assistance payments.

Looking at the quarterly data, found here, we can see that from the first quarter of 2008 to the first quarter of 2001, personal income overall increased 5 percent in the US. However, if we subtract transfer receipts, we see that income has increased by 0.7 percent. Transfer receipts, on the other hand, increased 30 percent during the same period.

From Jan. 2008 to Jan. 2011, the CPI increased 4.3 percent, so income that is not derived from transfer receipts went down in real terms. In other words, if we don’t count government assistance, we have less income now than we did three years ago.

Looking at these numbers over the last ten years, we see that from the 1st Q 2002 to the 1st Q 2011, personal income increased 44 percent, but when transfer receipts are removed, income increased only 37 percent. At the same time, transfer receipts increased 85 percent.

Over this ten year period, from Jan. 2002 to Jan. 2011, the CPI increased 24 percent. So, relying on this analysis alone, we could say that income did increase somewhat in real terms during this period, but that transfer receipts increased by more than twice as much.

This is a very simple analysis, but it does help to illustrate how significant a role transfer receipts play in the modern American economy. This has been especially true since 2008. It’s safe to say that a healthy portion of consumer spending, which the government prizes so much, is just being financed by the taxpayers and then recycled back into the economy.

Note: Transfer receipts can include some private payments such as liability payments for personal injury, but this is a small part of the overall transfer receipt numbers.

As his retirement date approchaes, Kansas City Fed President Tom Hoenig has become increasingly critical of the Federal Reserve, the big banks, and quantitative easing. His recent comments on a trip to Denver included this:

“Over a decade we’ve used monetary policy as an instrument to solve all problems,” Hoenig, who will step down in three months, told the audience at the Denver Association of Business Economists breakfast. “We know where that’s gotten us.”

Hoenig apparently forgot that The Fed prevented a second depression and that we’re in a glorious recovery.

Meanwhile, on a totally and utterly unrelated note, CNBC reports that “New Rules Put Clamp on Chatty Fed Officials” and that the Fed has grown weary of Fed officials who criticize the central bank’s policies.

“To the fullest extent possible, Committee participants will refrain from describing their personal views about monetary policy in any meeting or conversation with any individual, firm, or organization who could profit financially from acquiring that information,” the Fed said in a statement.

Such a statement is so broad as to basically muzzle any Fed official from expressing personal views to anyone who is particularly interested in Fed policy.

The Fed no doubt misses the good ol’ days when Alan Greenspan spake and no one dared contradict The Maestro. Now that no one cares what the Maestro thinks while Bernanke openly admits he doesn’t know what he’s doing, it’s apparently time for some obedient silence from Fed officials. Hoenig couldn’t care less given his retirement, but one should probably expect even less diversity of opinion coming from the FOMC and other organs of the central bank in the future.

It turns our that after the voters of Colorado Springs rejected a tax increase for the city, the city’s politicians ordered their public relations staffers to bad mouth the city and to cast a negative light on the city in national media. Basically, since they didn’t get their tax increase, the politicians were determined to make the city look as lousy as possible in a sort of I-told-you-so campaign that would make the voters sorry for not submitting to their betters.

According to the Colorado Springs Gazette:

After much probing by us, it became clear that [PR Director] Skiffington-Blumberg was given direct orders, after the defeat of the proposed tax increase, to tell the outside media about the most negative aspects of Colorado Springs. The campaign may have cost our city countless tourists and jobs. The Gazette was unable to reach [City Manager] Culbreth-Graft for comment.

“Our strategic plan was to paint a picture of the dire straits of our city budget. If we could not do so locally, we would do so in the regional and national press — though I’d have preferred that it not play out with Diane Sawyer,” Skiffington-Blumberg said, referring to one of several media giants who blasted Colorado Springs.

After she admitted the existence of this scorched earth campaign against the city, by the way, Skiffington-Blumberg was forced to resign by the City Manager.

In the past I’ve noted that Colorado’s constitutional requirements for popular votes approving tax increases have created a sort of local cottage industry in which politicians and their agents manufacture hysterical little narratives in which Colorado is the worst in the nation on everything ranging from education to city parks to traffic. “We’re worse than Mississippi” is a sort of local mantra of the local pro-tax crowd. The voters haven’t drunk the Kool-Aid on this of course, and neither has most of the country’s population since demographic data shows sizable net population gains for Colorado in recent years.

But if this latest story is clear, politicians will say just about anything to get a tax increase, even it it means waging a PR campaign against their own city.